Paper LBO Mental Math for PE Interviews
"Paper LBO mental math means reducing entry value, leverage, exit equity, MOIC, and rough IRR into a clean timed sequence."
— WSM Direct AnswerPE interviews often test whether you can explain sponsor returns without hiding inside Excel. A good paper LBO answer is fast enough to finish and structured enough for the interviewer to follow.
Entry is 10x EBITDA on $80M EBITDA with 5x debt. Sponsor equity?
▸ About $400M.
Enterprise value is $800M. Debt is 5 x $80M, or $400M. Sponsor equity is EV minus debt, so $400M.
Exit equity is $760M on an initial equity check of $400M. MOIC?
▸ About 1.9x.
Divide 760 by 400. That is 1.9x, a clean first-pass return before estimating IRR.
A 2.0x MOIC over five years implies roughly what IRR?
▸ About 15%.
The exact entry-to-exit IRR is 2^(1/5) − 1, or 14.87%, which rounds to about 15%. Rule of 72 gives a separate mental estimate: 72 divided by 5, or 14.4%.
Check the annualized return
Use MOIC and holding period to check your return estimate. The calculator assumes one investment at entry and one receipt at exit, with no interim cash flows.
Check MOIC to annualized IRR →How Wall St Math Helps
Wall St Math trains the percentage, multiplication, and Rule of 72 pieces behind paper LBOs so return math feels less fragile under interview pressure.